Sales of previously owned U.S. homes unexpectedly rose in August to the highest level in more than six years as buyers rushed to lock in interest rates before they rise further.
Purchases climbed 1.7% to a 5.48 million annual rate, the highest since February 2007, figures from the National Association of Realtors showed today in Washington. The median forecast of 79 economists in a Bloomberg survey called for a drop to 5.25 million. The median price jumped by the most since October 2005 reflecting tight inventory, the group said.
The data reflect some transactions begun a month or two earlier, when buyers were trying to get loans when mortgage rates were near record lows. Lawrence Yun, the group’s chief economist, said the surge in August was probably the “last hurrah” for the next 12 to 18 months as the recent gains in borrowing costs and prices hurt affordability.
“Housing will continue to improve, though the remarkable pace of improvement we saw in recent months isn’t going to persist,” Tom Simons, an economist at Jefferies LLC in New York, said before the report. “The impact that higher mortgage rates are likely to have is like taking the foot off the accelerator.”
Economists estimates in the Bloomberg survey ranged from 4.95 million to 5.41 million. The prior month’s pace was unrevised from the 5.39 million previously reported.
The median price of an existing home increased 14.7% from a year ago to $212,100, today’s report showed. That was the biggest gain since October 2005.
Compared with a year earlier, purchases increased 10.5% before adjusting for seasonal variations.
Activity at lockboxes, which hold the keys real-estate agents use to show houses to prospective buyers, showed “some significant change in direction” in recent weeks, indicating sales will probably slow in coming months, Yun said at a news conference today as the figures were released.
“Rising mortgage rates hurried some people into making the decision” to close on a deal, he said, which means demand will cool in coming months.
The number of previously owned homes on the market was 2.25 million at the end of August, the fewest for that month since 2002. At the current sales pace, it would take 4.9 months to sell those houses compared with 5 months at the end of the prior month.
Existing-home sales, tabulated when a contract closes, are recovering from a 13-year low of 4.11 million reached in 2008. Annual purchases peaked at a record 7.08 million in 2005.
Federal Reserve policy makers yesterday maintained record accommodation as rising borrowing costs showed signs of slowing the expansion.
“The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Federal Open Market Committee said in a statement after its two-day meeting. While “downside risks” to the outlook have diminished, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement.”
The rate on 30-year home loans averaged 4.57% in the week ended Sept. 12, close to the highest level since July 2011, according to data from McLean, Virginia-based Freddie Mac. The rate, which had been as low as 3.81% at the end of May, has been rising since Fed Chairman Ben S. Bernanke that month indicated the central bank may slow asset purchases.
The jump in mortgage costs is unlikely to halt the nation’s housing recovery, Red Bank, New Jersey-based Hovnanian Enterprises Inc. said. The company reported a profit for its fiscal third quarter as net contracts climbed 1.8% and the contract backlog, an indication of future sales, jumped 18% to 2,893 homes.
The company is confident any hesitancy from its customers caused by the jump in borrowing costs “will be a temporary bump in the road to housing recovery,” Chief Executive Officer Ara Hovnanian said on a Sept. 9 conference call with analysts.
PulteGroup Inc., based in Bloomfield Hills, Michigan, expects the run-up in borrowing costs will vary across consumer segments, James Zeumer, head of investor relations, said on a Sept. 10 teleconference. For first-time buyers, a half- percentage-point rise in interest rates means “there will be some of them that will be out of the game,” he said, while the move-up buyers “have a little bit more flexibility.”
Builders began work on fewer homes than projected in August, Commerce Department figures showed yesterday. Housing starts rose 0.9% to an 891,000 annual rate, lower than the 917,000 median forecast in a Bloomberg survey of economists and following the prior month’s 883,000 pace. Permits, a proxy for future projects, dropped more than estimated.